Iraq's cabinet approved BP's plan to spin off its business there into a separate entity as the company starts to transition to a lower-carbon future.
BP will jointly own the company — called Basrah Energy — with Chinese state-owned firm CNPC, according to a statement from Iraq's cabinet. CNPC is BP's partner at the 1.5mn b/d Rumaila oil field in Iraq's southern Basrah province. BP currently has a 47.6pc operating stake in the field, while CNPC holds 46.4pc and state-owned marketer Somo has 6pc.
"Today, the council of ministers approved the establishment of the Basrah Energy Company to be the financing entity for the development of the giant Rumaila field," Iraq's oil minister Ihsan Ismael said. "It will become one of the most important pillars of the energy transition, and an important element of sustainable development in Iraq".
The new company is subject to relevant approvals and clearances, BP said.
"It is expected to enable optimised and continued investment throughout the duration of the existing technical service contract" which is due to expire at the end of 2034, BP said.
BP's efforts to separate its Iraq business are by no means recent — discussions have been underway for around two years, sources say. But the move would benefit BP as it aims to become a net zero emissions company by 2050 and reduce hydrocarbons output by 40pc by 2030. And it placates a major investor in Iraq's upstream sector at a time when several foreign oil firms are exiting or expressing their discontent.
A self-funded entity with access to external financing separate from both parent firms would promote cost reductions and rationalisation, allowing BP to retain some of the value of these assets while freeing up capital to pursue low-carbon investments.
The independent joint venture would remove from BP's balance sheet the impact of delayed or absent payments from the Iraqi oil ministry. And it would allow BP to reduce its exposure to Rumaila's high emissions resulting from Iraq's slow progress in capturing flared gas.
Separating the Iraq business would also create a clearer choice for investors. "Assets such as those in Iraq get lost in the mix and hurt BP in terms of optics from a climate and an environmental, social and governance perspective," financial brokerage FinnCap's director of research Jonathan Wright told Argus earlier this year.
